Chart The EVA: UnitedHealth Group Inc (UNH) Q2 2021

 

Chart 1

Chart 2

Chart 3

Chart 4

Chart 5

Chart 6

Chart 7

Chart 8

Conclusion:

Suppose that Americans would be more inclined to have health insurance amid ongoing rising medical costs (chart 4). Or suppose that UNH would break its strategy by implementing higher pricing for its premium (chart 3). That would further increase its EVA, although unlikely to be significant, especially if the main driver is more customers, not higher pricing. It would still struggle to achieve EVA momentum above 0.5%. On the other hand, with UNH current share price at $419/share, investors are expecting EVA momentum of 0.7% for at least another ten years (chart 8). If the management could meet that expectation, UNH would add almost double NPV (Net Present Value) to its present NPV (chart 6). In other words, an additional $204 Billion in current cash. 

So that is the expectations placed by investors currently. Pretty optimistic, if not unrealistic, I might say. At the very least, UNH needs to demonstrate it could keep its economic profit. But for the past 12 months in Q2 2021, its EVA momentum was -0.4%. It could not keep its unusually high premium pricing in 2020 (see Chart 1).